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Yahoo! May Finally Unlock Value (Update 1)

Updated from 9:16 a.m. EST to provide additional analysis on Yahoo's U.S. operations and worth and reflect an ownership change percentage in Yahoo! Japan.

NEW YORK (
TheStreet) --
Yahoo!(YHOO - Get Report) is trying to unlock the value in its Asian assets, as the company believes it is worth more on a sum-of-the-parts basis than the market has been giving it credit for.

The New York Times reported yesterday that
Yahoo! is said to be weighing a sale of the majority of its holdings in
Alibaba Group and
Yahoo! Japan in a tax-efficient deal worth approximately $17 billion, or roughly $14 per share.

Yahoo! currently owns 40% of Alibaba Holdings, a Chinese Internet company, and 35% of Yahoo! Japan.

Yahoo!'s current market capitalization is $19.8 billion, suggesting that its U.S. core operations and the company's cash are valued at $2.8 billion. Yahoo! has approximately $2 per share in cash on its balance sheet, leaving the U.S. operations valued at close to nothing.

J.P. Morgan analyst Doug Annuth suggests Yahoo! could be worth as much as $20 per share if this tax-efficient deal should come to fruition.

In a research report, Annuth wrote that he believes a tax-free swap would add at least an additional 25% to yesterday's closing price of $15.99. "Our analysis suggests the deal would imply a per share value for Yahoo! of at least $20 compared to $15.99 at yesterday's close and our price target of $17. We view a high value tax-free swap as the best outcome short of an outright sale, though we would not rule out the potential for private equity to bid for Yahoo's operating assets alongside this transaction or at a future date," Annuth wrote.

Annuth rates shares neutral with a $17 price target.

Third Point's Dan Loeb has been arguing for some time that the company was worth more on a sum-of-the-parts basis, and it looks as if Yahoo!'s board is seriously considering doing something to recognize the value. Loeb, who owns 5.2% of Yahoo!, has previously said he believes Yahoo! is worth as much as $27 to $28 per share. He recently
wrote a letter to the board of directors asking Yahoo! to keep all of its options open regarding a way to unlock shareholder value.

Yahoo! has had the same issue as
AOL(AOL) in trying to determine the next phase for the company, as both well-known Internet companies struggle to best monetize their vast array of online assets. Year-to-date, AOL shares are off 36.5%, while Yahoo! is off 2.6%.

Yahoo! is clearly a powerful brand, with some 700 million people visiting the company's properties every month, yet the U.S. core operations continue to be valued at next to nothing.

In a research note, Sanford Bernstein analyst Carlos Kirjner wrote that Yahoo!'s core business might be be able to really monetize its audience using
Facebook. "We believe the value maximizing strategy for Yahoo! involves improving the monetization of its audience and end-user information through preferential access to content, end-user information and targeting and delivery technology developed by others. In other words, we believe Yahoo!'s future is fundamentally as a technology-savvy media company," Kirjner wrote. He rates Yahoo! market-perform with a $17 price target.

In considering this tax-efficient move, Yahoo!'s board may be doing nothing more than figuring out a way to boost the share price in the short term to satisfy institutional shareholders such as Loeb, and figure out what to do with the U.S. operations in the long run. There have been discussions that private equity firms such as
Blackstone(BX) and
TPG Capital might take over the U.S. operations.

Eric Jackson of Ironfire Capital
mentioned that Loeb believes the U.S. operations of Yahoo! are worth 7x EBITDA, or $10 billion. At current valuations, the market believes otherwise.

Yahoo!s board is set to meet today to discuss the option.

Alibaba declined to comment for this story, and Yahoo! could not be immediately reached for comment.